There is a particular group of entities in California which ought to be treated with caution: those suspended by the Franchise and Tax Board (“FTB”). When an entity is suspended by the FTB, its activities are extremely limited in court. “Except for the purposes of filing an application for exempt status or amending the articles of incorporation or organization as necessary either to perfect that application or to set forth a new name, the powers, rights, and privileges of a domestic taxpayer may be suspended…”¹ “This means a suspended corporation may not prosecute or defend an action in a California court.” ²

The California Revenue and Taxation Code section 19719 imposes criminal liability upon “any person who attempts or purports to exercise the powers, rights, and privileges of a corporation that has been suspended pursuant to Section 23301.”³ However, there is an exception. Section 19719(a) of the California Revenue and Taxation Code “shall not apply to any insurer, or to counsel retained by an insurer on behalf of the suspended corporation, who provides a defense for a suspended corporation in a civil action based upon a claim for personal injury, property damage, or economic losses against the suspended corporation, and, in conjunction with this defense, prosecutes subrogation, contribution, or indemnity rights against persons or entities in the name of the suspended corporation.”⁴

This, however, does not change the FTB-suspended corporation’s limited powers in litigation. “The plain language of Revenue and Taxation Code section 23301 ‘expressly deprives the corporation of all ‘corporate powers, rights and privileges’….’” ⁵ “A corporation that has had its powers suspended lacks the legal capacity to prosecute or defend a civil action during its suspension.”⁶ The court will usually allow time for a company to restore its corporate status by paying taxes due, should they choose to do so. However, companies may not want to pay taxes for various reasons or may not be able to pay in a short period of time.

That is when we should strategically utilize our discovery tools. If our opponent is an FTB-suspended entity, we seize the opportunity and propound carefully crafted Request for Admission as soon as allowed to do so. We hope that they fail to restore their corporate status before their time to respond is up, and we can file a motion to deem facts admitted in a Request for Admission. At minimum, this will lay the foundation for a motion for judgment on the pleadings. Insurers of suspended corporations should formally intervene to participate in the defense. As held in Kaufman & Broad Communities, Inc. v. Performance Plastering, Inc., an insurer which seeks to “provide defense in pending litigation on behalf of an insured corporation that had been suspended for nonpayment of taxes, is required to intervene in action in order to protect its own interests and those of corporation…”⁷

The key takeaway is to always verify the corporate status of the parties in the litigation and plan accordingly. As addressed above, if other parties are FTB-suspended, we can attack through discovery tools, but if we represent FTB-suspended companies, our hands are tied, and there is not much we can do until the revival of corporate status.

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Sources

1. Cal. Rev. & Tax. Code § 23301 (2025).
2. Timberline, Inc. v. Jaisinghani (1997) 54 Cal.App.4th 1361.
3. Cal. Rev. & Tax. Code § 19719(a) (1999).
4. Cal. Rev. & Tax. Code § 19719 (a) & (b) (1999).
5. Boyle v. Lakeview Creamery Co. (1937) 9 Cal.2d 16, 20, quoted in Timberline, Inc. v. Jaisinghani (1997) 54 Cal.App.4th 1361, 1366.
6. Sade Shoe Co. v. Oschin & Snyder (1990) 217 Cal.App.3d 1509, 1512, quoted in City of San Diego v. San Diegans for Open Government (2016) 3 Cal.App.5th 568, 577.
7. Kaufman & Broad Communities, Inc. v. Performance Plastering, Inc. (2006) 136 Cal.App.4th 212.